THE REPUBLIC OF KOREA - LEGISLATION AND REGULATIONS RELEVANT TO FRANCHISING

In November 2002 new regulations became applicable to franchising in Korea. These are contained in the Act on Fairness in Franchise Transactions, which entered into force on 1 November 2002, and in the Enforcement Decree of the Act on Fairness in Franchise Transactions which was enacted on 6 November 2002 by Presidential Decree No. 17773 (Ministry of Government Administration and Home Affairs).

The purpose of the Act, as indicated in its Article 1, is “to establish fairness in franchise transactions and to promote balanced and mutually complementary development on even terns between a franchisor and a franchisee for purposes of advancement of consumer welfare and a sound national economy”. The Act lays down a general duty of good faith in the performance of the duties of the parties (Article 4). It specifies what these duties are, including a number of duties which in other countries are left to an agreement between the parties (see Article 5 for the duties of the franchisor and Article 6 for the duties of the franchisee). Article 7 provides for a duty of disclosure for the franchisor, requiring that it provide prospective franchisees with a disclosure document five days before the payment of the initial franchise fee or before the execution of the franchise agreement. The details of what information should be provided in the disclosure document are specified in the Enforcement Decree, in particular in Attachment 1.

Article 8 of the act deals with the renewal and amendment of the disclosure document. Article 9 prohibits providing of false or exaggerated information, and Article 10 deals with the return of the franchise fees if false or exaggerated information is provided or if the franchisor unilaterally suspends the franchise agreement.

Other questions dealt with by the Act include the delivery of the franchise agreement (Article 11), the prohibition of activities constituting unfair trade practices (Article 12) (of which the Enforcement Decree, in particular Attachment 2 thereto, provides the details), notices of expiration of the franchise agreement (Article 13), restrictions of the termination of the franchise agreement (Article 14), and rules for self-regulation adopted by the professional association (Article 15).

Chapter 4 of the Act deals with dispute mediation, and establishes a Franchise Transaction Dispute Mediation Committee (Article 16). The composition of the Committee is laid down in Article 17, and includes representatives of the interests of the public, of franchisors and franchisees. The Committee members shall comprise people who are appointed or commissioned by the Fair Trade Commission from among those who are recommended by the Korea Franchise Association and who fulfil the requirements specified in Article 17. The Chairman is nominated by the Fair Trade Commission from among those representing the public interest.

Provision is also made for the accreditation of franchise transaction consultants, who have to register with the Fair Trade Commission (Articles 27 – 31).

Chapter V of the Act deals with the process of cases under the Fair Trade Commission and Chapter VI with penal provisions.